Transcript Germany`s Labor Market Puzzle

The German Labor Market Puzzle in the Great
Recession
Productivity Puzzles in Europe
January 23rd 2015
Cepremap,
ENS, Paris
Lutz Bellmann
Hans-Dieter Gerner
Marie-Christine Laible
Motivation
Deviation from established patterns in the Great Recession
‐ usually:
‐ employment path mirrors changes in GDP with a delay
‐ breaks in pattern:
‐ severe deline of GDP coupled with stable employment
‐ demand shock affecting mainly the manufacturing sector
What makes the German case different?
‐ labor market puzzle
‐ „Germany‘s job miracle“
‐ short-lived crisis
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Outline
Macro-economic trends
Germany‘s job miracle
Labor market institutions
‐ pacts for competitiveness and employment
Micro-economic evidence
Lessons learned
Conclusion
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Germany‘s GDP per head (1991-2012)
Notes: Prices in 2005 in 1000€
Source: Statistisches Bundesamt
Take-away:
- relatively stable upward pattern
- upswing prior to 2008/2009
- severe decline in 2009: -6.6% from its peak in 2008
- quick recovery
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Germany‘s quarterly unemployment rate (2006-2013)
Notes: Seasonally adjusted unemployment rate for selected countries.
Source: Eurostat.
Take-away:
- comparably high unemployment rate in 2006: 10.6%
- steady decline
- 2009Q4: 7.7% compared to Spain (18.9%), France (9.6%) and USA (9.9%)
- lowest in Europe in 2013Q4: 5.2%
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The manufacturing sector (I)
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The manufacturing sector (II)
Great Recession mainly affected manufacturers and exporters
18% drop in GDP for manufacturing sector in 2009
few spill-over effects to service sector
positive selection of firms (high pre-crisis competitiveness)
bailout packages aimed at these industries („Abwrackprämie“)
demand shock with limited duration  post-crisis demand
from Asian countries
strategic labor hoarding due to shortage of skilled workers
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Transitory external demand shock
-
CES ifo Group Munich surveys over 7.000 firms in manufacturing, construction,
wholesale, retail
expectations (more favourable, unchanged, less favourable) for the following six
months
 firms expected crisis to be short-lived!
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Germany‘s Labor Market Puzzle
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The Hartz Reforms (2003-2005)
1990s: low GDP growth and high unemployment rates  labor
market reform
restructured labor market with new incentives for unemployed to
seek jobs
‐ Hartz IV laws replaced unemployment benefits and social assistance
‐ cut of maximum duration of benefit entitlement
Results:
increased labor market flexibility
increased employment growth
increased effectiveness of labor market
decreased unit labor costs
favorable
pre-crisis
conditions
increased international competitiveness
allowed firms to build up financial reserves
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Short-time work
overcome “temporary, unavoidable loss of work due to economic
factors or unavoidable incident“ (§§ 101-111 Social Code III)
peak: 2009/Q3
‐ approx. 63,000 establishments (3 %)
‐ approx. 1.4 million employees (3 %)
‐ approx. costs for Federal Employment Agency: 5 billion €
but: by 2009/Q4 number of employees reduced by half
positive impact on employment revealed by Boeri/Bruecker (EP
2011)
existence of short-time work stabilizes (Balleer et al., 2014)
‐ unemployment fluctuations by 15%
‐ output fluctuations by 7%
Bellmann, Gerner, Laible – July 15th 2014
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Industrial relations
Germany‘s multi-level bargaining structure
pact for employment and competitiveness (PEC)
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Pacts for employment and competitiveness (PEC) –
institutional background
PECs (usually) include concessions from both the employer‘s and
the employee‘s side (gift exchange)
PECs mostly include concessions concerning wages and working
time
for example works councils agree to firm-specific deviations from
industry-level bargaining contracts, f.ex. reduced wages in
exchange for employment guarantees
Take-away from the Great Recession:
cooperation between social partners as one of Germany‘s most
important reactions to the crisis
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Reasons for Germany‘s job miracle
pre-crisis reforms helped
flexibilize the labor market
and pushed firms to
competitiveness
favorable institutions were
already in place before the
crisis and could be taken
advantage of
social partners willingness to
cooperate in crisis time
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Data overview
IAB-Establishment Panel Survey
representative survey of Germany‘s labor demand
‐ all industries, Bundesländer and establishment sizes
since1993 (West) and 1996 (West +East)
face-to-face interviews with high response rate
sample drawn from all establishments with at least one employee subject to social security
as of June 30th of the previous year
establishment = regionally and economically separate unit
annual questions + questions with current relevance
Sample

1993-2013

private sector
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Labor productivity development over time
Dependent variable: Basic equation
incl. control
For manufacturing
natural logarithm of
variables
industry incl.
revenue per worker
control variables
2000
-0,057 (0,008)
-0,050 (0,011)
-0,070 (0,016)
2001
-0,056 (0,008)
-0,050 (0,010)
-0,068 (0,015)
2002
-0,048 (0,008)
-0,044 (0,009)
-0,073 (0,014)
2003
-0,027 (0,007)
-0,018 (0,009)
-0,038 (0,014)
2004
-0,024 (0,007)
-0,004 (0,011)
-0,011 (0,015)
2005
-0,010 (0,006)
-0,003 (0,008)
0,009 (0,013)
2006
0,033 (0,006)
0,045 (0,007)
0,074 (0,012)
2007
0,037 (0,005)
0,037 (0,005)
0,089 (0,008)
2008
0,040 (0,005)
0,043 (0,005)
0,090 (0,008)
2009
Base category
2010
0,033 (0,004)
0,040 (0,004)
0,084 (0,007)
2011
0,068 (0,005)
0,071 (0,005)
0,120 (0,008)
2012
0,067 (0,005)
0,068 (0,005)
0,107 (0,008)
Number of firms
23.436
16.967
5.636
F-value
42,57
26,57
23,79
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Establishment-level PECs in 2008
Incidence of PECs is higher in establishments
- which are larger
- affected by the crisis
- with a bad profit situation
- highly involved in the system of industrial relations
Establishment size
1-10 employees
11-50 employees
51-100 employees
101-250 employees
251-500 employees
> 500 employees
Overall
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Incidendence in %
0.5
2.4
8.4
11.9
24.0
34.5
1.4
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Labor productivity and PECs
Dependent variable:
FE
2008/2009
natural logarithm of
control variables
without FE 2008/2009 with control FE 2008/2009 with control
variables
revenue per worker
Time dummy 2009
variables, manufacturing
industry
-0,043 (0,005)
-0,048 (0,005)
-0,105 (0,008)
Interaction time dummy -0,077 (0,017)
2009 and company level
pact 2008
-0,089 (0,020)
-0,090 (0,026)
Number of establishments
6,832
2,387
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7,358
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Employment adjustments and PECs
FE without controls
2008/2009
FE with controls,
2008/2009
𝛽1𝑛
0.042
0.047
FE with controls,
2008/2009, manufacturing
industry
0,064 (0,022)
𝛽2𝑛
(0.018)
-0.025
(0.016)
-0.013
0,017 (0,048)
𝛾1𝑛
(0.035)
0.055
(0.039)
0.068
0,056 (0,015)
𝛾2𝑛
(0.013)
-0.045
(0.015)
-0.058
-0,038 (0,024)
(0.025)
0.019
(0.027)
-0.016
0,003 (0,032)
(0.002)
7,358
(0.029)
6,832
2,387
𝛼
𝑛
Number of
establishments
∆𝑛𝑖𝑡 =
𝛼 𝑛 + 𝛽1𝑛 ∆𝑦𝑖𝑡 ∙ 1 ∆𝑦𝑖𝑡 > 0
+ 𝛾1𝑛 ∆𝑦𝑖𝑡 ∙ ∆𝑦𝑖𝑡 < 0
+
𝛽2𝑛 ∆𝑦𝑖𝑡 ∙ 1 ∆𝑦𝑖𝑡 > 0 ∙ 𝑃𝐸𝐶 + 𝛾2𝑛 ∆𝑦𝑖𝑡 ∙ ∆𝑦𝑖𝑡 < 0 ∙ 𝑃𝐸𝐶 +
𝛼𝑖𝑛 + 𝐷𝑡𝑛 + 𝜀𝑖𝑡𝑛
The German Labor Market Puzzle
∆𝑛𝑖𝑡 : 𝑒𝑚𝑝𝑙𝑜𝑚𝑒𝑛𝑡 𝑐ℎ𝑎𝑛𝑔𝑒 (𝑓𝑟𝑜𝑚 𝑡 − 1 𝑡𝑜 𝑡)
∆𝑦𝑖𝑡 : 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑓𝑟𝑜𝑚 𝑡 − 1 𝑡𝑜 𝑡
𝑃𝐸𝐶: 𝑑𝑢𝑚𝑚𝑦 (= 1, 𝑖𝑓 𝑓𝑖𝑟𝑚 ℎ𝑎𝑠 𝑎 𝑃𝐸𝐶 𝑖𝑛 2008
19
Lessons Learned
transference of best practices limited because:
‐ favourable pre-crisis conditions
‐ timing of reforms for labor market flexibility
‐ prior upswing
‐ stability and competitiveness of firms prior to crisis
‐ nature and duration of Great Recession
‐ manufacturing sector
‐ temporary demand shock
‐ remarkable willingness of all parties involved to cooperate
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Conclusion
interaction of many reasons responsible for Germany‘s job miracle
nature and duration of crisis very specific
labor hoarding as extensive phenomenon in the crisis
multi-level collective bargaining system deemed key in Germany‘s
success story
‐ willingness to cooperate
‐ flexibility achieved through company-level pacts for employment
firms making use of labor hoarding were able to recuperate quickly
and „bounce back“ after the demand shock lessened
overall productivity may benefit from employment stability
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Thank you!
Lutz Bellmann
[email protected]
Hans-Dieter Gerner
[email protected]
Marie-Christine Laible
[email protected]
www.iab.de
Backup
www.iab.de
Within-firm flexibilities
labor hoarding through
‐ short-time work
‐ depletion of working time accounts
‐ company-level pacts for employment
reasons:
‐ labor market legislation (employment protection)
‐ perceived shortage of skilled workers
‐ expectation of a temporary demand shock
 tool to retain skilled workers and resume high productivity in
upswing
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Working-time accounts
agreed upon by collective bargaining agreements
temporary deviation from average weekly working time
large surplusus (upswing in 2005-2007)
save labour costs
retain employees
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Company-level pacts for employment and
competitiveness (2)
Advantages
reduction of labour costs and thus increase of employees
increase in labour productivity through flexible working
time regulations and reorganizations
Disadvantages
promises made may be hard to keep when economic
situation deteriorates
distortion of labour markets: insiders are favoured
because of layoff restrictions and employment prospects
of outsiders are worsened
aids survival of firms, saves jobs and thus fosters
exaggerated employment expectations going against
employment
market trends
deviations from collective agreements are restricted
because unions would not agree otherwise
erosion of industry-level collective agreements
social partners are encouraged to take more responsibility
for employment issues
Source: Bellmann (2014).
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